If you have a business loan with the bank, chances are you have been asked to update your personal financial statement. Did you ever consider tying this exercise into your financial goals? If it’s important for the bank to know, maybe it’s important for you to know. After you get your tax return done, is a great time to evaluate your progress toward building your personal net worth.
Discover and Gather
Every day we are surrounded by our stuff. We fill and empty our bank accounts. We use our credit card, Pay Pal account, Venmo and sometimes, even cash. Rarely do we stop our daily activity and pull together a list of the financial resources we have at hand. I recommend that you start with the good stuff and then include the bad stuff.
The GOOD STUFF. Pull together your most recent bank and investment statements. Look for titles of vehicles, boats, toys, etc. Gather your real estate bills to find an estimated fair market value for real estate you own. If you own a business, print the most recent Balance Sheet and obtain a current depreciation schedule. Create a list of everything that you own.
Now THE BAD STUFF. Next, discover and gather your debt. Gather your most recent credit card statements, school loan statements, car loan statement and find your mortgage balance. Another option is to pull a credit report.
Determine the Value
Cash and investments are easiest to measure, just look at your statements. Vehicles values can be obtained from KBB.com. The challenge is measuring the value of your business or rental properties. These measurements are not an exact science, but they are formulas using cash returns that will provide a sound financial basis. I don’t recommend you use this value to establish a sales price, but it is great to provide a discussion of how to increase the value.
Calculate and Evaluate
Total the value of your assets and then reduce the value by your debts. The amount left is your personal net worth. According to Dr. Thomas Stanley, author of the Millionaire Next Door, your expected net value should equal 1/10 of your age times your annual realized income. For example, if you are 50 years old and earn $50,000 a year, your expected net worth should be $250,000.
Once you created this list, you can use it to set your goals. Evaluate the financial return of your current resources, work to improve the results and monitor your personal net worth.
Once you have identified where your net worth is, the next step is to protect it. It may be insurance, or estate planning or business succession.
How did you do? Are you satisfied with the results or does it push you to do better?
By Mary Guldan-Lindstrom, CPA
If you are interested in more information, request our free checklist to create your own personal financial statement. We can help pull the numbers together, along with providing a financial perspective and brainstorm with you ideas to improve your net worth. Please contact Mary, at Mary@focus-cpa.com or 920-351-4842.